Real Estate Tax Proration and Other Closing Costs: Understanding the Financial Aspects of a Property Purchase


When buying a property, it’s essential to understand the various closing costs involved to ensure a smooth and financially sound transaction. Among these costs, real estate tax proration plays a significant role. In this blog post, we will explore real estate tax proration and other common closing costs, helping you navigate the financial aspects of a property purchase with confidence.

1. Real Estate Tax Proration:

Real estate tax proration is a crucial aspect of the closing process. It involves dividing the property taxes between the buyer and the seller based on the portion of the year each party owns the property. The purpose of tax proration is to ensure that both parties contribute their fair share of property taxes for the time they own the property during the tax year.

2. How Real Estate Tax Proration Works:

To calculate real estate tax proration, the seller’s portion of the property taxes is determined by multiplying the annual tax amount by the number of days the seller owned the property during the tax year. The buyer’s portion is calculated similarly, based on the number of days they will own the property during the tax year. The prorated amounts are then adjusted at closing, with the buyer reimbursing the seller for their portion of the taxes.

3. Other Common Closing Costs:

In addition to real estate tax proration, several other closing costs should be considered when budgeting for a property purchase. These may include:

   a. Loan Origination Fees: Charged by the lender for processing the loan application.

   b. Appraisal Fees: The cost of assessing the property’s value.

   c. Title Insurance: Protects against any potential title defects or claims.

   d. Home Inspection Fees: The cost of a professional inspection to assess the property’s condition.

   e. Attorney Fees: Legal representation during the closing process.

   f. Recording Fees: Charges for recording the deed and other documents with the appropriate government agencies.

   g. Escrow Fees: Fees charged by the escrow company for handling the closing process.

   h. Homeowners Association (HOA) Fees: If applicable, fees associated with the property’s HOA.

4. Prepaid Expenses:

Prepaid expenses are another aspect of closing costs. These include items such as property insurance premiums, prepaid interest, and property tax reserves. Lenders often require borrowers to prepay a portion of these expenses at closing to ensure the property is adequately insured and taxes are paid.

5. Negotiating Closing Costs:

While some closing costs are non-negotiable, others may be subject to negotiation. Buyers can discuss with the seller the possibility of sharing or covering certain costs. Additionally, it’s advisable to shop around for services such as title insurance and home inspections to find competitive pricing.

6. Closing Disclosure:

Before closing, buyers receive a Closing Disclosure, which outlines all the closing costs associated with the property purchase. Review this document carefully to ensure accuracy and to understand the breakdown of costs. If you have any questions or concerns, consult with your real estate agent or attorney.


Understanding real estate tax proration and other closing costs is crucial for a successful property purchase. Real estate tax proration ensures a fair distribution of property taxes between the buyer and seller, while other closing costs cover various expenses associated with the transaction. By familiarizing yourself with these costs, negotiating when possible, and carefully reviewing the Closing Disclosure, you can navigate the financial aspects of a property purchase with confidence. Working with experienced professionals, such as real estate agents and attorneys, can also provide valuable guidance throughout the closing process.